Demand for a commodity depends on the utility it offers to the consumer. Utility means the level of satisfaction which people derive from the consumption of a commodity. Utility is a subjective concept. Different people derive different level of utility from a given good. Harmful goods such has liquor is also said to have utility from economic stand point as people want them. Thus, the concept of utility is ethically neutral.Example: A person may derive 100% satisfaction from drinking coffee, while another may not receive any satisfaction.
Utility, from the economic point of view, is said to be ethically neutral. This is because even harmful items like cigarettes, alcohol etc. are demanded, as people want them. Thus, the concept of utility does not distinguish between harmful and non-harmful objects.
When a consumer gets maximum satisfaction, it is called equilibrium and it is also called the most comfortable position. In order to call it the equilibrium position, two conditions are required viz.
- The consumer should get maximum satisfaction
- The consumer should not prefer to change